Suffering a sinkhole loss is already difficult enough, but for those homeowners with a claim being handled by FIGA, the process can often become even more complicated. This can occur when the terms of the insurance contract issued by the original, now insolvent, insurance carrier arguably conflict with FIGA’s duties and obligations under the Florida Insurance Guaranty Act (“FIGA Act”). In a recent opinion, Florida’s Second District Court of Appeal (“2nd DCA”) found such a gray area regarding a policy’s appraisal provision and FIGA’s obligation to pay a policyholder for their sinkhole loss.1
Specifically, the 2nd DCA certified two questions “of great public importance” to the Florida Supreme Court:
1. DOES THE DEFINITION OF "COVERED CLAIM" IN SECTION 631.54(3), FLORIDA STATUTES, EFFECTIVE MAY 17, 2011, APPLY TO A SINKHOLE LOSS UNDER A HOMEOWNERS’ POLICY THAT WAS ISSUED BY AN INSURER BEFORE THE EFFECTIVE DATE OF THE NEW DEFINITION WHEN THE INSURER WAS ADJUDICATED TO BE INSOLVENT AFTER THE EFFECTIVE DATE OF THE NEW DEFINITION?
2. DOES THE STATUTORY PROVISION LIMITING FIGA’S MONETARY OBLIGATION TO THE AMOUNT OF ACTUAL REPAIRS FOR A SINKHOLE LOSS PRECLUDE AN INSURED FROM OBTAINING AN APPRAISAL AWARD DETERMINING THE "AMOUNT OF LOSS" IN ACCORDANCE WITH THE TERMS OF THE HOMEOWNERS’ POLICY OF INSURANCE?
These issues were presented to the 2nd DCA after FIGA appealed an amended final judgment requiring it to pay $130,600 awarded at appraisal to the insureds for their sinkhole loss. The first part of this blog series focuses on the procedural and factual background of the case – which is crucial to understanding the 2nd DCA’s opinion on these two questions.
The property, located in Tampa, was insured from May 2009 through May 2010 under the homeowner’s policy issued by HomeWise Preferred Insurance Company. In March 2010, the insureds notified HomeWise that their property had sustained a loss as a result of sinkhole activity. HomeWise maintained that the property had not suffered a sinkhole loss, as defined by the policy, and denied coverage for the claim. The insureds then filed suit against HomeWise in November 2010.
About a year later, on November 4, 2011, a circuit court entered an order adjudicating HomeWise to be insolvent. FIGA took over the handling of the “covered claims” from the insolvent insurer, in accordance with the FIGA Act, and was substituted as the Defendant in place of HomeWise. In an interesting turn of events, FIGA later confirmed that sinkhole activity was a cause of the damage to their residence. FIGA indicated that it would issue payment to stabilize the ground and perform the cosmetic repairs only after the insureds executed a contract to complete the repairs recommended by FIGA’s consultants. The insureds did not agree to FIGA’s request since their experts disagreed with FIGA’s consultants regarding the proper method of repair to the residence.
The insureds demanded appraisal, pursuant to the special sinkhole endorsement within their insurance contract with HomeWise, to determine the amount of the sinkhole loss. Though FIGA rejected the insureds’ demand, it was later ordered by the trial court to participate in the appraisal. On May 1, 2013, the appraisal panel awarded $130,600 to the insureds for their loss.
When the insureds moved to confirm the award, FIGA objected because the definition of a “covered claim” under the 2011 version of the FIGA Act2 prohibits FIGA from paying the insureds directly for their sinkhole loss. The trial court, however, disagreed with FIGA and ruled that the version of the FIGA Act in effect when the policy was issued controlled. Since that version of the FIGA Act did not prohibit payment of a “covered claim” for a sinkhole loss to the insured, the trial court confirmed the appraisal award and entered judgment against FIGA for $130,600.
On appeal, the 2nd DCA addressed not only which definition of “covered claim” applied—the version in effect when the policy was issued, which did not prohibit payment directly to the insured for a sinkhole loss, versus the one in effect when HomeWise was adjudicated insolvent—it also considered whether appraisal is even available to determine the amount of loss when a sinkhole claim is handled by FIGA. In the next part of this blog series, I will discuss in detail how the 2nd DCA approached the first issue. Make sure to check back then to learn more.